Energy economists don’t like rooftop solar. Depending on the policy involved, it can entail significant and cost-inefficient ratepayer subsidies. For example, Lucas Davis at UC Berkeley’s Energy Institute at Haas recently calculated that non-rooftop solar customers are paying $65 per year to subsidize solar customers. He got this number by taking the difference in price between a retail credit for every kilowatt hour delivered from a rooftop solar customer to the grid and the wholesale price that this electricity actually costs.
In California, the average retail electricity price is about $0.18/kWh, while wholesale rates are close to $.04/kWh. That means that utilities are losing about $.14/kWh for each retail credit they give rooftop solar customers for their surplus solar (since they could have purchased the electricity for much cheaper elsewhere). And since utilities have a lot of fixed costs sunk in grid infrastructure, Davis was able to calculate the total subsidized amount spread over non-rooftop solar customers and divide it by ratepayers to arrive at the $65 per year in ratepayer cost-shifting.
Ultimately, it’s that cost-shifting that explains why energy economists like Davis and Serverin Borenstein hate California’s new solar rooftop mandate so much.
But this cost-shifting doesn’t have to happen — it’s due specifically to electricity rate policies. And in that respect, Hawaii tells a different and more promising story. Ultimately, I believe that state’s rooftop solar policies are where California is headed soon.
In Hawaii, utilities stopped offering full retail credit for surplus rooftop solar back in 2015. Instead, they essentially pay solar customers the wholesale rate for their surplus. As a result, utilities aren’t losing what would be $.14/kWh in California for each retail credit they give. So no cost-shifting happens.
And the impact on the ground for Hawaii rooftop solar customers? Homeowners are still ordering solar panels, but now home battery installations are starting to take off, too, as this state government chart from Utility Dive shows:
To be sure, it’s still relatively early days of the policy and the on-the-ground response. But given plunging battery prices, as well as cheaper solar installations, this solar-plus-battery technology solution seems like a great way to address complaints about cost-shifting and ratepayer subsidies. It also points to a path forward for the rest of the country, with a future of rooftop solar on most homes — and batteries in every basement or garage.
The upside is more clean technology deployed, a bigger market to bring down costs further on solar and home energy storage, reduced greenhouse gas emissions, and improved grid resilience in the case of extreme weather or other disasters. Not a bad deal all around, and one California will probably eventually see as well, as its rooftop solar policies evolve.
Hawaii’s energy and land use challenges are very much a postcard from the future for mainland USA. I’ve written before about how renewables and EVs in Hawaii are trend-setting for the rest of the country. But it’s true on land use, too.
Native Hawaiians are allotted homesteads on lands that were property of the dethroned Hawaiian crown. Yet many Native Hawaiian have waited years to be able secure lands and affordable homes. Now pre-fabricated, tiny homes may offer the solution, thanks to financing from the nonprofit Council for Native Hawaiian Advancement. Hawaii News Now covered the story recently:
Hawaii News Now – KGMB and KHNL
Why is this useful for the mainland? Here in California, high construction costs are part of the reason for our housing shortage. Prefabricated homes, like those in Hawaii, represent a promising way to bring down the costs and ensure more affordable and ample homes for everyone.
We’ve already seen the movement start to take hold, such as tiny apartments in San Francisco and Sacramento. And prominent developers like the Bay Area’s Rick Holliday have begun building modular homes for the likes of companies like Facebook, all to bring down construction costs but still deliver high-quality homes.
If it can work in Hawaii, it can certainly work across the country.
Hawaii and Nevada represent two states pioneering a “post-net metering” world for rooftop solar. Collectively, they’re providing some interesting learning experiences for the rest of the country.
Many other states have traditional net metering, in which any surplus rooftop solar energy you produce for the grid is credited at a full retail rate on your bill. But Hawaii and Nevada utilities have successfully pushed back on that approach, convincing state regulators to diminish or even gut the incentives.
First, Hawaii: the state has significant rooftop solar uptake, with a nation-leading 17% of all customers in the main utility’s service territory. But the utility there has been trying to fight further proliferation with the usual arguments related to reliability and cost.
The state’s regulator has largely followed the utility line, ending net metering and replacing it with two options. The first is a fixed rate payment for surplus power that is less than the full retail credit, called a “grid supply” option. The second is a “self-supply” option that features a minimum bill and only some surplus power allowed back on the grid.
Perhaps not surprisingly, the fixed rate “grid supply” option has been the most popular. But regulators imposed a cap on that program, which the islands have already started to bump up against. As a result, solar companies are lobbying hard for regulators to raise the cap. But even if they raise the cap, the long-term problem isn’t going away.
So that’s why it’s interesting to see the market in Hawaii respond with technology packages to help spur demand for the self-supply option. As Utility Dive reports:
Other solar developers like Sunrun and SolarCity have rolled out offerings aimed at the CSS [self-supply] option. SolarCity’s product is a combination of storage, solar systems and a Nest thermostat, water heater and controller, allowing consumers to use more of their energy onsite.
The savings are significant, according to Mark Dyson from Rocky Mountain Institute. By using the product, customers could “save 33% on their electricity bill, “which amounts to “nearly 80% of the savings that the old NEM arrangement offered.”
Sunrun’s Brightbox is another option. The company teamed up with Tesla to offer solar-plus-storage system, a much simpler one than SolarCity. While the first Brightbox installation occurred earlier this year, the company plans to roll out this offering in full force before the end of the year.
Both offerings could receive a boost if a group of energy storage bills reappear in the next legislative session, bringing down the cost of storage installation through extending tax credits, offering rebates or both.
Nevada has plenty of sun but no more rooftop solar
So in Hawaii, we may end up seeing a combination of smart new policies and technology and financing packages that can make a post net-metering world viable there for distributed clean technology.
Nevada, meanwhile, is pulling back from the brink a bit. The state’s electricity regulators had previously yanked all solar incentives — not just for new customers but for existing ones that already plopped down thousands of dollars (in some cases) for rooftop PV.
But now a deal seems to have been worked out to soften the harsh retrenchment. Per the Reno Gazette-Journal:
NV Energy reached an agreement with the Public Utilities Commission of Nevada, Bureau of Consumer Protection and SolarCity to grandfather eligible customers under previous rates for residential rooftop solar that featured lower fees and higher reimbursement rates for the energy produced. The rates were hiked in December and also retroactively applied to existing customers.
“NV Energy’s intent with its grandfathering proposal was to offer a solution for customers who installed or had valid applications to install rooftop solar systems … in the most efficient and timely manner,” the company said in a statement. “We appreciate all parties coming together to expedite the process on behalf of our customers.”
The grandfathering agreement will apply to about 32,000 customers, including those who had a pending application on Dec. 31, 2015. Customers who withdrew a valid application or had their application for the RenewableGenerations expire between Dec. 21 and Dec. 31 are eligible to be grandfathered as well. The agreement still must be approved by the PUC, which is expected to vote on it on this week.
It’s a welcome development for those existing customers, who were treated unfairly by the abrupt policy change. But more will be needed to rescue the state’s rooftop solar industry, which has been annihilated by the new policy. Perhaps Nevada may need to consider a policy more like Hawaii’s grid-supply option as a compromise. But in the meantime, a ballot measure backed by the solar industry could reinstate solar incentives, if voters approve.
All in all, both states provide glimpses of a possible future for state rooftop solar incentives. While some experimentation is happening there, at least in Hawaii, it’s clear that they both need to improve their policies to keep rooftop solar — and the environmental benefits that flow from it — alive and well.
Nevada and Hawaii are two states that have taken different, though both scaled-back, approaches to rooftop solar. But the good news for solar advocates is that both states appear to be making progress, for different reasons.
First, Hawaii. The Aloha State retrenched from the generous net metering retail rate compensation last year. Instead, state regulators pushed a hybrid option that allows customers to either take a wholesale rate for all power they export or get a retail credit for all the power they use on-site (but not for any exports, which are not credited).
And in a positive development, the new rates are actually leading to enough customer demand that the state may soon reach its cap on new enrollees. As Utility Dive reports, the cap may be met as soon as next month. What that means is that the economics of the reduced incentives are still working for many customers, and it also gives them an incentive to buy a battery, if they go with the retail rate (in order to maximize their on-site usage).
Granted, Hawaii uniquely has ridiculously high electricity rates and tremendous solar exposure, making it not exactly representative. Still, it shows that the economics of reduced incentives can still work, once the price of the panels comes down (or the price of electricity increases).
Meanwhile, over in Nevada, the state gutted its solar incentives, even going back on its deal with existing customers, leading to stranded assets and betrayed buyers. But now an electoral push may reverse this decision by voter initiative. The utility is fighting back, per the Las Vegas Review-Journal, but so are solar companies. And there are murmurs that the governor is willing to hash out a deal with the solar companies.
My guess is that Nevada will end up with a compromise, perhaps along the lines of the Hawaii path. And in the long run, we know the current generous net metering incentives won’t last forever. So a future that still encourages deployment and also on-site storage in the form of batteries would be a good one.
In the very long term, rooftop generation may not be the best way forward anyway, particularly given that many people don’t have a rooftop with sun exposure or lack sole access to theirs. So we should be simultaneously encouraging more community solar and microgrids as the best way to decarbonize and localize our electricity systems, leading to greater reliability and cheaper prices in the process.
Another Aloha Friday from our friends in Hawaii, where record-setting rooftop solar deployment on the island of Molokai is leading to an avoidable and largely policy-made crisis. As the Molokai Dispatch reports:
As of last March, 65 solar applications on Molokai were in limbo, following an effective shut-down of Maui Electric to accept additional rooftop solar systems onto the island’s grid. At 51 percent as of last year, Molokai has the highest percentage in Hawaii of rooftop solar compared to the island’s peak electricity demand. Most of the rooftop solar is installed under a program called Net Energy Metering (NEM), which pays customers the retail electric rate for excess energy generated from their panels. Maui Electric asked the PUC to close that program, and their request is still being reviewed.
During a meeting on Molokai in March 2015, Mat McNeff, MECO manager of engineering, told residents because the high volume of solar generation on Molokai could cause fluctuations in electric frequency resulting in potential island-wide power outages, MECO is no longer able to connect new rooftop photovoltaic (PV) systems under the NEM program.
I’m sympathetic to the challenges that this level of solar penetration can cause for grid operators. But there should be a logical and immediate policy response to address the challenges.
First, the utility needs to get permission immediately to revise electricity rates to encourage as much usage as possible during peak solar hours. State regulators should require these time-of-use rates to get island residents to shift as much discretionary usage to mid-day hours and away from night time as possible. I recognize there may be some equity impacts for those unable to shift their usage, but think of the equity impacts right now from holding up all of these solar applications.
Second, state regulators need to develop an immediate incentive program for those with solar applications to also purchase on-site energy storage. Home batteries could help moderate the output from this rooftop energy and provide electricity after the sun goes down. This would greatly help grid operators deal with the frequency fluctuation and avoid having to ramp up other resources quickly around sunset.
While it’s a bit unfair to require this only of new solar customers, it’s a long-term and unavoidable need and better than letting them languish. Plus the incentives could also target existing solar customers.
To be sure, these policy responses aren’t exactly new ideas. They are commonly discussed throughout the U.S. and other places with strong solar policies as long-term needs to deal with increasing solar uptake. But the island of Molokai is experiencing a solar crisis right now, and it’s small enough to implement these ideas quickly and see how they play out.
I hope the utility and state regulators can move quickly to address this problem. The rest of the world will certainly be watching.
For Aloha Friday, I wanted to cite a Utility Dive write-up on a conference in Maui devoted to figuring out how to actually achieve 100% renewables in the islands. The lessons are instructive for all of the world, as Hawaii truly is our postcard from the future for renewables and a clean grid.
The big topics focused on integrating all these intermittent resources, with better distribution grid visibility for the utility to manage all these “local” storage and renewable assets, as well as better rate design to encourage flexible demand that mirrors intermittent supply.
But the conference also touched on new business models for the local utilities going forward, as the economics of the grid will change dramatically with 100% renewables.
All in all, another reminder that the island state is worth watching as the rest of the country slowly follows suit.
As I’ve covered before, the State of Hawaii has halted its rooftop solar incentive program (“net metering,” where solar customers get full retail electricity credit for any surplus solar they generate). Now state regulators are proposing to replace it with two options, a “grid-supply” option and a self-supply option. The outcome will be a “postcard from the future” for other states, given that Hawaii leads the country in rooftop solar penetration and high electricity prices.
The grid-supply option would replace the full retail rate credit for surplus solar electricity that happens under net metering. Instead, customers would get a new tariff for surplus solar power, based on the avoided costs of fossil fuel-based generation during peak generation hours, as measured from July 2014 to June 2015. That translates to $0.151/kWh for Oahu, $0.154/kWh for Hawaii, and $0.172/kWh for Maui. That’s still a good payment for the surplus electricity, but it’s about half of what customers used to get under the full retail rate under net metering. Plus new customers will have to pay a minimum monthly bill of $25.
The self-supply option is primarily designed to support customers who do not export their surplus to the grid. Instead, they would earn retail rate credit for on-site generation that aligns with their demand. In other words, customers would strategically shift their electricity usage to soak up all their surplus solar power, such as by running all their appliances during peak daylight hours. Or they could buy a battery to store surplus solar power for dark times. Utilities would then be required to streamline interconnection for these systems.
The environmental and solar communities basically hate what state regulators are doing, as Utility Dive reports. But these proposals in fact may not dramatically stall the rooftop solar market. For example, my favorite utility, Kauai Island Utility Cooperative (KIUC), ended net metering in 2009 and replaced it with the similar grid-supply option, and their installations continued to climb. Plus, the self-supply option could serve to encourage ‘grid defection,’ as customers with batteries and solar realize they don’t actually need their utility anymore.
Certainly I’d prefer to see a more gradual transition away from net metering, as opposed to the sudden halt that happened in Hawaii. But in the long run, with continuing price declines on solar and batteries, we need to move in this new direction anyway. However, regulators shouldn’t pull the plug too quickly on the current incentives, or they may end up destroying the only bridge to this future. And that’s not a postcard I want to see, no matter how many palm trees are on it.
Hawaii leads all states in rooftop solar adoption, and the state has the most aggressive renewables goal in the country, with a target of 100% renewables by 2045. But paradoxically, Hawaii’s regulators just ended the policy that has led to high levels of rooftop solar uptake: net metering.
Net metering is what most states use to encourage distributed renewables. Customers don’t get cash for any energy they generate on-site but instead get a retail credit on their bill for any surplus power they generate and don’t use on-site. In Hawaii, it’s been a great deal, because electricity rates are ridiculously high, as they generate electricity from burning imported diesel. And of course sunshine abounds there.
But the policy is no more:
The PUC said nothing will change for existing net metering customers, nor those who submitted applications for the program before Monday. But those who submitted the applications afterwards will have to choose two new options when installing solar.
The self-supply option — a non-export option — allows a limited amount of inadvertent energy exportation to the grid without any compensation. Residential customers who choose this option will have a minimum bill of $25, while small commercial customers will have a $50 minimum bill.
The grid-supply option will open the door for exporting excess energy to the grid for credits against customer bills so long as the exports benefit the electric system. While similar to net metering, this option does not credit customers at the retail rate. Instead, the new grid-supply programs credits customers at a fixed rate between $0.15/kWh to $0.28/kWh, depending on the island on which they are located.
My guess is that these two options will still provide economic incentive for many Hawaii customers to go solar, just given how expensive electricity is there (typically in the 30 cents per kilowatt hour range or more). But not as much incentive, and therefore there will be less rooftop solar. And I’m dubious about utility doom-and-gloom claims that the existing amount of rooftop solar is putting grid reliability and affordability in jeopardy.
But in the long run, we know rooftop solar incentives everywhere will start to head in this direction. California regulators are already in the process of revamping and scaling back net metering incentives here, per a 2013 state law. My hope is that costs will come down on solar, both in terms of hardware and soft costs, to offset some of the incentive decreases and that the new rates will encourage energy storage purchases, such as home batteries.
But I don’t see that energy storage incentive built in to Hawaii’s two new options, which is troubling. There ought to be an incentive to encourage supply of renewables at key times, which batteries can do. In other words, we need to reward customers for supplying steady and well-timed solar power to the grid.
Ultimately, we’ll need to encourage everyone to purchase both solar and storage, and smart rate design should find the sweet spot between those two. Hawaii would be a great place to start figuring that out.
The New York Times ran an excellent piece over the weekend on the challenges in Hawaii to adding more rooftop solar. Hawaii’s investor-owned utility has been restricting new access to rooftop solar compensation for the last 18 months. Utility spokespeople claim it’s due to the high volume of solar rooftops in the state, which leads the nation. They say it’s creating operational expenses and reliability challenges. But the reality is that utility leaders simply don’t want to lose revenue from more distributed solar.
As the article points out, Hawaii is presenting a glimpse of our future across the U.S., as solar panels become cheaper and electricity rates increase. But I was struck by one part of the story, detailing how some customers are reacting to these restrictive policies:
Installers — who saw their fast-growing businesses slow to a trickle — are also frustrated with the pace. For those who can afford it, said James Whitcomb, chief executive of Haleakala Solar, which he started in 1977, the answer may lie in a more radical solution: Avoid the utility and its grid altogether.
Customers are increasingly asking about the batteries that he often puts in along with the solar panels, allowing them to store the power they generate during the day for use at night. It is more expensive, but it breaks consumer reliance on the utility’s network of power lines.
“I’ve actually taken people right off the grid,” he said, including a couple who got tired of waiting for Hawaiian Electric to approve their solar system and expressed no interest in returning to utility service. “The lumbering big utilities that are so used to taking three months to study this and then six months to do that — what they don’t understand is that things are moving at the speed of business. Like with digital photography — this is inevitable.”
This is called “grid defection,” or going off the utility grid entirely. And if battery prices keep decreasing, electricity rates keep increasing, and utilities keep pushing back against solar customers, we may start seeing a whole lot more of it. And all three of these trends are happening across the United States right now.
Hawaii is the best state in America — when it comes to rooftop solar at least. With over 51,000 solar customers, the state has between 9 to 12 percent solar penetration on some islands, compared to a measly .5% nationwide. And it’s hard not to see why, from an economics perspective. Utility rates are some of the highest in the country, averaging more than 30 cents a kilowatt hour (and more on some islands). And the sun abounds in the islands, of course.
The solar incentives are also fantastic: in addition to the 30% federal tax credit, the state offers a tax credit on up to 35% of a solar PV system or $5000, whichever is less. And with the “net metering” rate program in effect, solar customers get retail rate credit for surplus electricity they generate but don’t use on-site. At over 30 cents per kwh, that’s a good deal and a lot of credit.
So it’s no surprise then that the payback period for buying these systems is really short — 5 years average in Oahu and 4 years in Maui (California probably takes close to twice that time for a typical residential system).
But now Hawaii’s primary electric utility, Hawaii Electric Companies (HECO) (which serve Oahu, Maui, and Hawaii), wants to dramatically roll back the net metering program:
HECO filed a Transitional Distributed Generation (TDG) program Jan. 20 with the Hawaii Public Utilities Commission. … [T]he TDG program includes a cut in the value of the credit solar owners earn for the electricity their systems send to the grid. Instead of being credited at the retail electricity rate of $0.295 cents per kilowatt-hour (kWh), Oahu solar owners would get a TDG-estimated tariff rate of $0.147 per kWh; on Maui, solar owners would go from $0.351 per kWh to $0.223 per kWh; and on Hawaii, the credit would drop from $0.359 to $0.18.6 per kWh.
HECO says it will honor NEM agreements with current rooftop solar owners and those with pending interconnection applications.
In addition, HECO wants to install special inverters with new solar systems that will allow the utility to cut off the solar energy whenever they want to.
The plan is unfortunate in many ways. First, HECO and the Hawaii PUC have not yet thoroughly studied the benefits brought by all this distributed solar generation. Those costs and benefits should be quantified before new rates are adopted. Second, the rates do not reflect time of use, so they don’t encourage conservation or solar energy generation at times that would be most beneficial for the grid, in terms of reliability and cost savings. Finally, and somewhat related to #2, they don’t include any incentives for energy storage. A relatively small battery could store surplus solar for dispatch when the grid (i.e. HECO) really needs that power, thereby reducing the costs on the system from managing the power from these rooftop solar arrays. Right now those batteries are pricy, but HECO could greatly encourage people to purchase them if they knew there was a guaranteed and adequate revenue stream.
I hope this opening salvo from HECO is dramatically altered before it comes anywhere close to final. It’s easy to see the utility argument that net metered customers aren’t always paying their fair share for the grid, but this proposal fails to take into account what those costs might be and what specific policies might address them. The whole country has a stake in seeing Hawaii get these policies right and not jeopardizing the groundbreaking progress the state has made to date on solar.
